After years of hyper rapid credit growth, China’s leadership now has a laser-like focus on reducing financial risk. Not so long ago this issue was met with official silence. Since late 2016, President Xi Jinping has devoted half a dozen speeches to the topic. Such top-level attention has already led to substantial policy changes. The head of the insurance regulator, which had allowed companies to sell short-term life policies to finance illiquid, long-term investments, was fired and more restrictive policies have been strictly implemented. New aggressive leadership took over at the bank regulator, which almost immediately issued new rules to curtail regulatory arbitrage by banks and began to investigate excessive lending to a small number of companies that were making large foreign acquisitions. The central bank took steps to raise short-term interest rates, including importantly in the interbank market. Finally, the state council, China’s cabinet, last month established a Financial Stability and Development Commission to better co-ordinate supervision among the various financial regulators.Hand in hand with these developments, credit expansion in China has moderated significantly over recent quarters. Conventional wisdom says that tightening financial conditions and the tailing off of the recent resurgence of enterprise profits will slow growth — something that runs counter to official policy. In response, the authorities, determined to meet their longstanding goal of doubling real gross domestic product in the decade to 2020, will not consolidate the budget deficit and push appropriate structural reforms, such as the down-sizing of lossmaking state enterprises. Rather they will simply continue to run large deficits and resume the previous breakneck pace of credit expansion in order to fuel growth. The result, according to the International Monetary Fund, will be a further surge in both public and corporate debt. On the latter, the IMF anticipates that the ratio of domestic credit to GDP will rise to almost 300 per cent of GDP by 2022 — a level that elsewhere in the world has been associated with either sharp slowdowns in growth, when the problem of excess leverage is eventually addressed, or financial crises, if the problem is ignored.This analysis overlooks several factors. First, China’s leadership has clearly elevated the priority of reducing financial risks relative to maximising economic growth. They seem prepared to accept somewhat slower economic growth and even some increase in financial stress as the price of more moderate credit growth.Second, although growth has slowed since the global financial crisis, China is well within striking distance of doubling its real GDP in a decade. Doubling in 10 years requires a compound annual growth rate of 7.2 per cent. In the six years to the end of 2016 China’s GDP expanded at an average rate of 8.1 per cent in real terms. Growth this year will quite likely at least match last year’s 6.7 per cent, so average annual growth of 6.3 per cent in the next three years will put the economy over the line. Third, China’s growth is becoming less dependent on credit-fuelled investment. Consumption growth has come to the fore, contributing two-thirds of economic expansion in both 2015 and 2016 and over three-fifths in the first half of this year. For households, consumption growth has been facilitated by the expansion of wages, interest and business income, and government transfers. Thus, disposable income has been growing more rapidly than GDP since 2013. That trend seems certain to continue. Wages are likely to continue to grow relatively rapidly, given the ongoing shrinking of the working-age population and the emergence of the more labour-intensive service sector. And the government seems likely to further boost pension payments and other types of transfers.So a 6.3 per cent pace of growth should not require credit expansion at the rate of recent years. The authorities should sustain the more moderate expansion of credit, which is consistent with the policy of reducing financial risk and putting China’s growth on a more sustainable path. The writer is a senior fellow at the Peterson Institute

An idealist is one who, on noticing that a rose smells better than a cabbage, concludes that it is also more nourishing.

L. Mencken

Many pundits associate higher copper prices with inflation. While this is true to a degree, that is the wrong metric to focus on. Higher copper prices are usually associated with an improving economy. For the past few years, Copper which is a leading indicator did not trend in sync with the markets. It was marching to a different drum beat, but a new trend could be in the works.

Copper has traded past a key resistance point ($3.00), and it has managed to close above this important level on a monthly basis. The long term outlook for copper is now bullish and will remain so as long as it does not close below $2.80 on a monthly basis. Copper is facing resistance in the 3.20-3.25 ranges and as it is now trading in the extremely overbought ranges.

As copper is now trading in the extremely overbought ranges, it is more likely to let out some steam before trading past this zone. A healthy consolidation should provide copper with the force needed to challenge the $3.20 ranges and trade as high as $3.80 with a possible overshoot to $4.00, provided it does not close below $2.80 on a monthly basis.

Now that copper has traded past $3.00 on a monthly basis, the Fed deserves another pat on the back for they have managed to further cement the illusion that this economic recovery is real.

Copper is seen as a barometer for economic growth, so pulling off a Houdini is probably going to propel a lot of former naysayers to embrace this economic recovery.

What about the Inflation issue?

Should we start to worry about inflation, now that copper prices are trending higher? We would prefer to look at it from a different angle; higher copper prices in the past were associated with an improving economy. For a long time, this indicator like the Baltic dry index diverged, but now it appears copper is dancing to the same tune as the Stock Market

Don’t focus on the inflationary factor, as we are not operating in normal times. The Fed opened Pandora's box so expect the unexpected.

Greenspan raised rates from 1% in 2004 to 5.25% in 2006 and long term rates hardly budged.

The Fed today is in no position to act as aggressively and on a worldwide basis, central bankers are preparing for deflation as opposed to inflation.

Long term rates are trending upwards, but the Fed has already changed its tune and appears to be taking a more dovish stance.

"Because the neutral rate is currently quite low by historical standards, the federal fund's rate would not have to rise all that much further to get to a neutral policy stance," Yellen will tell Congress.

In a twist, the bond market did not trade to new lows after the last rate hike. In fact, it put in a higher low and has been trending upwards. The bond market has completely shrugged off the effects of the last rate hike.

Bonds bottomed out in March, and since then they have been trending upwards. A monthly close above 158 should lead to a test of the 164 ranges.

Last but not least, the velocity of M2 money stock continues to trend downwards. Inflation will remain a non-issue until it starts to trend upwards. We also have a plethora of deflationary factors to consider, grocery wars that will escalate now with Amazon’s purchase of Whole Foods, automation and AI, etc.

Irony is the form of paradox. Paradox is what is good and great at the same time.

One of the uncertainties with cryptocurrencies has always been how governments would react once bitcoin and its kin got big enough to actually threaten the monopolies of national fiat currencies. That day seemed to be approaching as cryptocurrencies’ aggregate market cap blew through $100 billion and the pipeline of new bitcoin wannabes (initial coin offerings, or ICOs) swelled into the hundreds. Even – in a classic sign of a bubble top — Paris Hilton got involved:

Hotel Heiress Paris Hilton Is the Latest Celebrity to Promote an ICO(Coin Desk) –Celebrity heiress and reality TV star Paris Hilton has taken to Twitter to announce her participation in a token sale, or ICO.Called Lydian, the venture claims the project is developing “blockchain driven technologies to reduce ad fraud and to maximize the effectiveness of ad marketing expenditures.” The idea has been floated by a number of projects of late, including efforts backed by advertising industry participants.

And lately governments have indeed begun to defend their turf. The US Internal Revenue Service decided that since cryptocurrencies were clearly not money (only the dollar is money!) they must be commodities, which means every transaction creates a taxable gain or loss. In August the IRS drove the point home by unveiling software that can track supposedly anonymous crypto transactions:

(Fortune) – One benefit of using bitcoin is the digital currency can be anonymous—its owners can move money around the world without revealing who they are. Well, in theory at least. In reality, bitcoin is less secret than people think.The latest reminder of this comes via a report that the Internal Revenue Service is using software to unmask bitcoin users who have failed to report profits. According to a contract unearthed by the Daily Beast, the IRS is paying a company called Chainalysis to help identify the owners of digital “wallets” that users employ to store their bitcoins.

In a letter to the IRS, the co-founder of Chainalysis says the company has information on 25 percent of all bitcoin addresses and that it deploys millions of tags to help track and identify transactions.

The decision by the IRS to license the software of Chainalysis, which is based in Switzerland with an office in New York, appears to be part of the agency’s larger campaign to target digital currency users who have failed to pay tax.

As Fortune reported earlier this year, the IRS claims only 802 people declared a capital gain or loss related to bitcoin in 2015. This is significant since the price of bitcoin soared from around $13 to over $1100 between 2013 and 2015, and hundreds of thousands (like millions) of Americans bought and sold digital currency during this time—in other words, there are many people who face bitcoin-related tax trouble, and the IRS is tracking some of them down.

Then China decided it had had enough of the dot-com-like tsunami of new digital currencies pouring into its economy, and banned future releases, crashing the price of most extant cryptocurrencies.

(Bloomberg) – Bitcoin tumbled the most since July after China’s central bank said initial coin offerings are illegal and asked all related fundraising activity to be halted immediately, issuing the strongest regulatory challenge so far to the burgeoning market for digital token sales.The People’s Bank of China said on its website Monday that it had completed investigations into ICOs, and will strictly punish offerings in the future while penalizing legal violations in ones already completed. The regulator said that those who have already raised money must provide refunds, though it didn’t specify how the money would be paid back to investors.

It also said digital token financing and trading platforms are prohibited from doing conversions of coins with fiat currencies. Digital tokens can’t be used as currency on the market and banks are forbidden from offering services to initial coin offerings.

“This is somewhat in step with, maybe not to the same extent, what we’re starting to see in other jurisdictions — the short story is we all know regulations are coming,” said Jehan Chu, managing partner at Kenetic Capital Ltd. in Hong Kong, which invests in and advises on token sales. “China, due to its size and as one of the most speculative IPO markets, needed to take a firmer action.”

Bitcoin tumbled as much as 11.4 percent, the most since July, to $4,326.75. The ethereum cryptocurrency was down more than 16 percent Monday, according to data from Coindesk.

China banned and deemed illegal the practice of raising funds through launches of token-based digital currencies, targeting so-called initial coin offerings (ICO) in a market that has exploded since the start of the year.

Yicai’s report late Monday cited a source close to decision-makers as saying the announcement on the ban was just the start of further follow-up regulations of virtual currencies.

The above raises two big questions. First, how will cryptocurrencies fare in a world of increasingly strict and complex regulations? Second, what kinds of assets stand to benefit if cryptocurrencies cease to function as “digital gold”? The first question is a tough one, because it involves the interplay of governments, revolutionary tech and free markets, which means pretty much anything is possible. The second, though, is easier: If digital gold falters, real gold wins:

(Bloomberg) – Mark Mobius is sensing danger in the explosive growth of cryptocurrencies.

Governments will begin clamping down on digital currencies because of their use in illicit financing, with terrorist groups to drug dealers contributing to their rise, Mobius, executive chairman at Templeton Emerging Markets Group, said in an interview in Hong Kong Monday.

“Cryptocurrencies are beginning to get out of control and it’s going to attract the attention of governments around the world,” Mobius said. “You’re going to get a reversion back to gold because people are going to wonder, can I really trust these currencies?”

Mobius isn’t the only one voicing concern. Bank of America Merrill Lynch was cautious around bitcoin in July, saying there were a lot of obstacles, such as theft and hacking risks, that make it unlikely it will gain the status of pledgeable collateral.

“People need a means of exchange and they need to trust that,” said Mobius, who was interviewed before China’s announcement. “Right now the trust is good — with bitcoin people are buying and selling it, they think it’s a reasonable market — but there will come a day when government crackdowns come in and you begin to see the currency come down.”

A New York Times piece argues that the stock market’s steady gains are “bound to end.”

By John Kimelman

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Getty Images

Last Thursday’s 274-point drop in the Dow Jones Industrial Average, a mere 1.2% trim, was treated by the media with the fanfare that in previous times might have been reserved for at least a mini one-day crash. But given how calmly markets have traded in recent months, it’s perhaps understandable why market observers might have lost perspective. A Sunday piece in the New York Times supplies the numbers to illustrate just how tranquil the stock market has been in recent months, even against a backdrop of war talk out of North Korea and the never-ending infighting in the White House. Jeff Sommer, a veteran editor with the Times, writes that the U.S. stock market has moved in its tightest range since 1965, though the small daily movements have fortunately trended to the upside.Sommer quotes Ryan Detrick, a senior market strategist for LPL Financial, who has found that the Standard & Poor’s 500 has not had a 5% decline, from peak to trough, since June 28, 2016. “That sell-off, 6.1 percent over several days, occurred after Britain’s surprise vote on June 23, 2016, to leave the European Union,” he adds.Moreover, other measurements supplied by LPL Financial’s Detrick show the same pattern. “For the three weeks through Aug. 10, the closing levels of the S&P 500 never had a daily swing of more than 0.3%, never happened before in the history of the S.&P. 500.” And for 2017 so far, the average daily trading range has been 0.55%, the lowest ever.But then Sommer’s piece moves quickly from the factual to the speculative. His main point is that the stock market’s period of tranquility is “bound to end.” To which anyone might conclude, “Well, of course, it’s bound to end.” The question is: how soon? Sommer, like all other market observers, doesn’t have the answers, nor should he. In fact, he’s profoundly unsure just where markets are heading, as this bit of writing makes clear. “One of these days, these various streaks will end. A big stock market decline could well precede and predict a recession,” Sommer concludes. “But barring a disastrous geopolitical, economic or financial shock — there are plenty of possibilities, take your pick — it is likely that both the bull market and the economic recovery will keep grinding on for a while. But don’t count on it. We are pushing our luck. Even if you believe in magic, the markets rarely stay calm and buoyant for such an exceedingly long time.”While no one should turn to journalists for forecasting advice, the same applies to highly-celebrated hedge-fund managers. In his latest written commentary, Ray Dalio, the chairman and chief investment officer of Bridgewater Associates, puts investing aside to mount a political soapbox. Dalio asserts that “politics will probably play a greater role in affecting markets than we have experienced any time before in our lifetimes but in a manner that is broadly similar to 1937.”Dalio writes that “history has shown that democracies are healthy when the principles that bind people are stronger than those that divide them, when the rule of law governs disputes, and when compromises are made for the good of the whole—and that democracies are threatened when the principles that divide people are more strongly held than those that bind them and when divided people are more inclined to fight than work to resolve their differences. Conflicts have now intensified to the point that fighting to the death is probably more likely than reconciliation.” He adds: “While I see no important economic risks on the horizon, I am concerned about growing internal and external conflict leading to impaired government efficiency (e.g. inabilities to pass legislation and set policies) and other conflicts.”The problem is that Dalio’s political essay leaves investors to guess what the current state of affairs might mean for them. Does political instability trump an economy with “no important” economic risks?Dalio doesn’t answer this question, so we might have to watch how it plays out in real life.

This Upcoming Treasury Borrowing Binge Could Hit Markets Harder Than the 2008 Crisis

Editor's Note: There's no question that the Fed "rigs" the markets. The million-dollar question is, how? After 50 years of investigation, Lee Adler has crunched the numbers and discovered the truth. In this report, he pulls back the curtain and reveals where the Fed really sends its money and why – and how those deals work directly to control the stock market.

The most important governmental advisory committee you've never heard of just issued a stunning forecast and warning that every investor needs to hear.This warning was not reported in the mainstream media, even though it came from the most elite level of Wall Street.Nor did this crowd release its forecast through its captive media, like CNBC or The Wall Street Journal.I'll tell you why in a minute, but people who do get this warning will have the chance to protect what’s theirs and make some money when this happens.

Why We Need to Listen to TBAC

The committee that I am talking about is known in governmental circles and on Wall Street as the "TBAC" – the Treasury Borrowing Advisory Committee. This committee is authorized under federal law to meet with the U.S. Treasury to advise it on the Treasury's borrowing needs for the current and next quarter, as well as any other long-term issues that the Treasury requests.The TBAC is comprised of the top executives of a select group of banks, investment funds, and primary dealers. In other words, it's the epitome of "plugged in."The current 15 members of TBAC are a virtual "who's who" of top Wall Street executives: managing directors, chief investment officers, and head traders for firms like Prudential, BlackRock, JPM, Vanguard, BNY Mellon, Citadel, Barclays, Morgan Stanley, Goldman Sachs, PIMCO, Citigroup, and other less familiar, but equally powerful worldwide institutions.

Once each quarter, TBAC issues a report to the U.S. Treasury secretary that reviews economic developments of the past quarter and makes recommendations for future borrowing. The reports are issued early in February, May, August, and November.The economic review is a rehash of old news.More importantly, TBAC makes "recommendations" to the Treasury regarding its future borrowing needs. Those recommendations include a detailed schedule of issuance for the remainder of the current quarter and the following quarter. These schedules cover literally every bill, note, and bond auction, including expected gross and net issuance for the next four-and-a-half months.And they are hardly "advisory" in nature – more like "diktats, written in stone." That’s what makes this so unsettling and potentially dangerous.

Powered by stock markets, the fund’s return in the two first quarters was 6.5%

By Dominic Chopping

An oil rig in the Barents Sea off the coast of northern Norway. Norway’s wealth fund was built on the country’s oil riches. Photo: Mikhael Holter/Bloomberg News

Norway’s sovereign-wealth fund, the world’s biggest, continued its march toward a $1 trillion valuation after the best half-year return in its history. The fund announced a 2.6% return on its investments in the second quarter of this year, helped by a solid performance from its stock-market portfolio.Norges Bank Investment Management, the arm of the central bank that manages the fund, said Tuesday the quarterly return equated to 202 billion Norwegian kroner ($25.6 billion).The total value of the fund on June 30 was 8.02 trillion kroner—or $957.13 billion calculated at the exchange rate on that date. This figure would have been even higher were it not for a 16 billion kroner withdrawal by the government and the strong krone, which in combination reduced the value of the fund by 32 billion kroner, NBIM said.Norway approached the trillion-dollar milestone despite pressure on sovereign-wealth funds globally. Ultralow interest rates are crimping returns and cheap oil is cutting into the income of the largely resource-dependent countries rich enough to possess such funds. Last year was the first time Norway’s government, seeking to fill a hole in its budget, withdrew more money from the fund than it put in.However, stock markets have set record after record in 2017, powered in large part by a revival in U.S. corporate earnings. The Dow Jones Industrial Average passed 22000 in August, more than tripling from a low in March 2009.“The stock markets have performed particularly well so far this year, and the fund’s return in the two first quarters was 6.5%,” Trond Grande, deputy chief executive of Norges Bank Investment Management, said.“This gives a total return of 499 billion kroner, which is the best half-year return measured in Norwegian kroner in the history of the fund. We cannot expect such returns in the future. The record-high return is primarily due to the fact that the fund has become so large.”Equity investments generated a 3.4% return for the fund with fixed income and unlisted real-estate providing 1.1% and 2.1% returns respectively.NBIM said the fund had 65.1% of its reserves invested in equities on June 30 with 32.4% in fixed income and 2.5% in unlisted real-estate.

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.